One of the best things you can do for your children (or even yourself) is to invest in a tax-advantaged education savings plan. When my first child was on the way, I began looking into Registered Education Savings Plans with a plan of making the $2,500 annual contribution necessary to receive the maximum Canada Education Savings Grant (CESG) of $500 each year.
While researching the RESP, I found out about another grant called the Alberta Centennial Education Savings Plan. While I realize this post doesn't apply to most of the readers here, I think it's an excellent program and maybe those outside of Alberta might want to push their provincial governments to adopt something similar.
Use ACES to Boost Your Child's RESP
Any tax-advantaged account is a great way to invest money. Your money grows in a way that is more efficient, since taxes don't represent a drain on your wealth. Plus, with the RESP, you get the added bonus of receiving a savings grant from the Canadian government each year.
Our government values education, and incentivizes you to save as much as possible by rewarding you when you save a certain amount toward an RESP each year. However, the federal government isn't the only entity providing you with the chance to boost your savings for your child's education.
At birth, the Alberta Centennial Education Savings, or ACES, will pay $500 into the RESP of any child, born 2005 or later, who has at least one parent who is a resident of Alberta. You are not required to match this grant, though you may have a minimum contribution required by the bank to open an RESP.
When your child turns 8, 11 and 14, they may also be eligible for a ACES grant of $100. These grants require that the child is attending school and that you have contributed $100 to the RESP within the year prior to the application. This is a great way to add a little more to your child's RESP over time. While it might not seem like a lot, the reality is that it becomes a bigger deal when you consider the impact of compound interest. Any free money is a bonus, and the fact that the grants earn interest is an even bigger bonus. If you consider the effect of compound interest until your child is 18 and starts attending university, things start to look promising.
Take Advantage as Much as You Can
The cost of attending university is only going to go up over time. You need to take advantage as much as you can. My wife and I now have two beautiful children, and we received ACES for both… that's a Family RESP with an extra $1000 in it from the provincial government! When my eldest reaches the milestone for 8 year olds, I'll be looking forward to the extra $100 boost.
Part of good finances is looking for these types of programs so that your money grows in the most efficient way possible. You can't stop inflation from eroding your returns over time, but you can improve your tax efficiency. An RESP account is one way to do that. The tax advantages allow you to grow your money quicker. You should also carefully compare your RESP options and choose an account that comes with relatively low fees. Fees are another way you can reduce your real returns, and minimizing fees is a good way to ensure that you keep more of your money.
While the CESG provides a maximum of $7,200 in grants into your child’s RESP, the additional $800 in ACES grants from the Government of Alberta is an extra incentive to get parents investing in their children’s future education. When you combine ACES with the CESG grant, that's $8,000 in free money for your child's RESP! Plus, when you consider that you've had to meet yearly contribution requirements to take advantage of that money, keeping you on track with your dollar cost averaging efforts for the RESP, that's even more money in the account.
While this grant may only be available to residents of Alberta, readers from other provinces may want to write their local MLA to suggest a similar program to encourage further education in their province. Of course, if you are a resident of Alberta, you might want to hurry up and start investing, since the program is under review. Get in ASAP to get whatever advantage you can.